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Company News
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Mulit-Housing Companies Continue Rolling Out Procurement Platforms
Data Standards Will Be Necessary to Take Root in Industry
MARCH 02, 2002 - Denver--The tech buzz
of just a few years ago may have fizzled, but that hasn't
meant a halt to the multi-housing industry's adoption
of online product procurement systems. Apartment owners
and operators continue to evaluate, test pilot and implement
a variety of these kinds of services, and while they
are finding that integrating them with back-office operations
like accounting software is an important hurdle still
to be overcome, they expect further industry-wide adoption
in the not-too-distant future.
In the case of two multi-housing REITs--United Dominion
Realty Trust and Camden Property Trust--the licensed
proprietary Web-enabled software of OpsXchange is in
one stage or another of being rolled out to their properties.
"It's been kind of quiet compared to the fast and
furious past year or two, but I think [online product
procurement] has a future in the industry," says
United Dominion Realty Trust Senior Vice President Martha
Carlin, who was senior vice president of operations
at OpsXchange Inc. before joining the REIT. United Dominion
expects to implement OpsXchange throughout its portfolio
in the second quarter of this year. "I think it's
still something very much on the mind of the industry.
. . People have gone back to focusing more on basics,"
she contends.
Camden Property Trust has already adopted OpsXchange
for its back office needs, having integrated electronic
invoice processing into its accounting department. And,
after successfully testing the product in October, the
REIT is now in the process of deploying the software
across its national apartment portfolio for purchasing
needs.
It was the ability to adopt the OpsXchange platform
while maintaining existing vendor relationships that
was key in attracting the real estate owner, says Camden
Vice President of Property Services Laurie Baker.
"The reason I think they've survived is that they're
the only company with a business strategy that enabled
the vendors and the buyers without disintermediating
their relationships," Baker says. She points out
that, unlike other Web procurement services, OpsXchange
is not conceived of as a public exchange, but rather
a company's own private, though Web-enabled and served,
marketplace.
On the other hand, San Francisco-based Metric Property
Management, a subsidiary of SSR Realty, has yet to be
sold on any one procurement site after investigating
for the past 18 months. Dale Ernest, Metric's national
construction manager, finds a Web version of supply
catalogues cumbersome for on-site employees, and it
does not necessarily garner better prices than what
his company has contracted with Wilmar Industries Inc.,
which provides approximately 90 percent of its maintenance
supplies.
Metric's
relationship with Wilmar has resulted in the use of
technology for Web-fueled purchasing, a means that falls
somewhere between the old-fashioned paper catalog and
online marketplaces by utilizing Palm Pilots with built-in
scanners and bar-coded labels. When supplies need to
be reordered, on-site personnel scan a product's bar
code and enter the quantity of items to be ordered;
back in the office the Palm Pilot is put in its cradle/modem
and the order is sent directly to Wilmar for processing.
Down
the road, Ernest says, Wilmar hopes to have the technology
to allow clients like Metric to also download that information
right into their own accounting systems. "I think
the Palm Pilot program is really cutting-edge, and it
seems to be working well," Ernest says.
Recognizing that the business model of online procurement
"just makes so much sense," Memphis-based Fogelman Management
Group went full-speed ahead in rolling out the procurement
service it opted for--SiteStuff Inc.--throughout the
company. But while Mark Fogelman, principal in charge
of business development, still believes wholeheartedly
in the concept, he says his company has scaled back
its use due to some limitations that have yet to be
worked out in the ever-evolving world of online procurement.
"It
is most beneficial in cost savings for certain non-vital
products, like office, electric and maintenance supplies,"
Fogelman says, "but [we] stepped back from using online
procurement for anything specialized or involving a
service aspect or time-sensitive orders." He found that
in some cases, delivery of items was not always carried
through in a timely manner. Other times when an ordered
product was not in stock, the substitutes that were
sent were not always compatible with their needs.
While these procurement sites offer a chance to request
or bid on services--like plumbing or landscaping--in
addition to products--like light bulbs and paint--it's
the products that are getting the most attention right
now.
"[Our] company gets the majority of its MRO needs, such
as maintenance parts, appliances and paint store products,
through its procurement membership," says Randy Fleece,
vice president at Atlanta-based Brencor Asset Management.
In some cases, these online procurement services are
distinguishing themselves by focusing on either a broad
or narrow range of property owners and managers. OpsXchange
has put considerable focus on the multi-housing industry
with charter customers including Camden, Equity Residential
Properties Trust, Lincoln Property Co. and Trammell
Crow Residential, yet ebuyxpress.com targets all kinds
of real estate while trying to foster its relationship
with the multi-housing sector through an alliance with
Professional Apartment Services.
HandySource.com, a virtual bid and purchase marketplace,
is specifically geared to the multi-housing industry,
while SiteStuff's more than 3,600 plugged-in properties
include apartment assets--though they are not the majority.
While its major backers and users (Trammell Crow Co.,
CB Richard Ellis, Jones Lang LaSalle Inc., and Insignia/ESG
Inc.) are primarily office and industrial players, Lend
Lease Apartment Management and Fogelman are among SiteStuff's
customers.
Another procurement service focused on the multi-housing
industry, Buyers Access, continues to offer the print
buying guides it started with in 1986, though it has
also been on the World Wide Web since launching its
site in 2000. Its owner/manager clients include SWH
Properties, Apartment Investment & Management Co. and
Brencor Asset Management.
Fleece says his company is still using the Buyers Access
service primarily in paper form and not online. "It's
the procurement company's power of purchase, customer
support and contracting services, and not its Internet
access, that are driving [our] membership," he contends,
adding that he sees his company moving its purchasing
online in the future.
Some fear factor has come into play, as well. With both
sides of the buyer-vendor equation required to make
these marketplaces work, each side's adoption rate has
been cautiously slow in a "Which comes first? The chicken
or the egg?" quandary. More quality vendors are likely
to sign on if they see their customers and prospective
customers on the customer list, while owners and managers
are more likely to jump on the bandwagon when they see
their vendors participating.
"I think there will be more and more vendor adaptation.
Once they see the largest vendors signed on, the more
middle-size vendors will see [the benefits]," Baker
says. "And then the owners who have this product will
be able to spend better and manage that better."
And like most things in life, membership in or licensing
for these services doesn't come free. The fees charged
to use these services as well as the sweat equity of
analysis and implementation ultimately have to balance
out with the savings they promise. While it has proven
itself worth it, Brencor's Buyers Access membership
is reviewed on a regular basis, and they are not alone
in taking that prudent tactic. "We revisit it every
year. It costs so much per unit to be a member," Fleece
notes.
"You are going to have to pay something to get these
benefits," adds Carlin.
The initial investment does seem to be paying off for
the owners and managers using these services, however,
even if they say those savings are hard to quantify,
according to Fleece. "The decreased costs due to bulk
purchasing are indeed the main benefit," he says.
Beyond saving dollars and cents from bulk purchasing
discounts, these online procurement services are offering
apartment owners and operators other benefits, perhaps
even less quantifiable but no less important. They allow
the real estate company to set buying parameters and
approval structures at the corporate level, at the same
time enabling product choices and purchasing straight
from the property level.
They also are enabling owners and operators to have
greater reporting capabilities, notes Baker, allowing
the corporate users to not only keep track of historical
purchasing trends but also transition to new staff with
greater ease, an important point in light of considerable
turnover among property-level staff.
The technology can also go a long way toward eliminating
unnecessary and unapproved purchases. "One of the things
you hear about in the purchasing world (is) maverick
purchasing," Baker comments. "You can get a much better
handle on that."
Ernest is convinced that the potential to streamline
the back-office part of supplies procurement holds the
greatest promise in cost reduction and savings, since
it would allow both the buyer and the vendor to eliminate
some overhead involved in the process. But to reach
their potential, procurement services will have to be
able to offer software systems that can be easily integrated
into other platforms. "At this point, to my knowledge,
no one has software that would interface with our accounting
software," he says.
Ernest does not doubt online product procurement's future,
though he does point out that companies were too quick
to market themselves before they could actually deliver
on the services they were promising. "We've been looking
at online procurement for the past year and a half.
I've looked at several companies that at the time claimed
had the best thing going. What I found at the time was
everyone was talking about and thinking about it but
not actually doing it," he says.
But as online procurement grows and its adoption is
stepped up, there will be more pressure to put in place
industry-wide data standards so that owners and operators
can integrate their property management systems with
their purchasing systems, accounting systems and credit
screening systems. "In the end there has to be a universal
platform. We're hesitant to add on anything that isn't
compatible," Fogelman says.
Randy Fleece, vice president at Atlanta-based Brencor
Asset Management.
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